Medtronic 2012 Annual Report Download - page 62

Amortization of Intangible Assets Amortization of intangible assets includes the amortization
expense of our definite-lived intangible assets consisting of patents, trademarks, tradenames, purchased
technology, and other intangible assets. In fiscal year 2012, amortization expense was $335 million as
compared to $339 million for fiscal year 2011. The decrease in amortization expense for fiscal year 2012 was
primarily due to certain intangible assets that became fully amortized, thereby reducing ongoing
amortization expense, partially offset by the fiscal year 2011 acquisitions of ATS Medical, Osteotech, and
Ardian and the second quarter fiscal year 2012 acquisitions of Salient and PEAK.
In fiscal year 2011, amortization expense was $339 million, an increase of $22 million from $317 million
in fiscal year 2010. The increase was primarily due to an increase in the amortization of intangible assets
related to the acquisitions of Invatec and ATS Medical.
Other Expense, Net Other expense, net includes royalty income and expense, realized equity security
gains and losses, realized foreign currency transaction and derivative gains and losses, impairment charges
on equity securities, and the Puerto Rico excise tax. In fiscal year 2012, other expense, net was $364 million,
an increase of $254 million from $110 million in the prior fiscal year. The increase was primarily due to the
impact of foreign currency gains and losses. Total foreign currency losses recorded in fiscal year 2012 were
$195 million compared to gains of $61 million in the prior fiscal year. The increase in hedging losses was
partially offset by realized gains of $51 million on certain available-for-sale marketable equity securities in
fiscal year 2012. Also contributing to the increase in other expense, net, was $100 million related to the
Puerto Rico excise tax for fiscal year 2012 compared to $38 million for the prior fiscal year. The Puerto Rico
excise tax was substantially offset by a corresponding tax benefit which was recorded within provision for
income taxes in the consolidated statements of earnings.
In fiscal year 2011, other expense, net was $110 million, a decrease of $40 million from $150 million in
the prior fiscal year. The decrease was impacted by foreign currency gains of $61 million in fiscal year 2011
compared to $11 million in the prior fiscal year. Also contributing to the decrease was higher royalty income
and licensing payments that we received in our CardioVascular business compared to the prior fiscal year.
These decreases for fiscal year 2011 were partially offset by an increase of $38 million related to the Puerto
Rico excise tax for fiscal year 2011, which was substantially offset by a corresponding tax benefit which was
recorded within provision for income taxes in the consolidated statements of earnings.
Interest Expense, Net Interest expense, net includes interest earned on our cash and cash equivalents,
short- and long-term investments, interest on our outstanding borrowings, amortization of debt issuance
costs and debt discounts, the net realized and unrealized gain or loss on trading securities, ineffectiveness
on interest rate derivative instruments, and the net realized gain or loss on the sale or impairment of
available-for-sale debt securities. In fiscal year 2012, interest expense, net was $149 million, as compared to
$278 million in fiscal year 2011. The decrease of $129 million in fiscal year 2012 was primarily the result of
decreased interest expense due to lower interest rates on our outstanding debt in comparison to fiscal year
2011 and reduced debt discount amortization due to repayment of $2.200 billion of Senior Convertible
Notes in April 2011. Additionally, interest income increased due to an additional $1.6 billion of long-term
investments in comparison to fiscal year 2011 as we continue to reinvest a portion of our cash and investment
portfolio into securities with longer maturities to take advantage of higher long-term interest rates.
In fiscal year 2011, interest expense, net was $278 million, as compared to $246 million in fiscal year
2010. The increase of $32 million in fiscal year 2011 was the result of an increase in interest on outstanding
borrowings due to the $3.000 billion debt issuance in the fourth quarter of fiscal year 2010, which was offset
by lower interest rates on our outstanding debt in comparison to fiscal year 2010. Interest income decreased
as a result of having lower interest rates being earned on our short- and long-term investments during fiscal
year 2011.
See our discussion in the “Liquidity and Capital Resources” section of this management’s discussion
and analysis for more information regarding our investment portfolio.
Medical Device Excise Tax The Patient Protection and Affordable Care Act and the Health Care and
Education Affordability Reconciliation Act of 2010 impose significant new taxes on medical device makers
in the form of a 2.3 percent excise tax on U.S. medical device sales, with certain exemptions, beginning in
January 2013. We currently estimate that our fiscal year 2013 excise tax fee (impacting only the last four
months for fiscal year 2013) will be in the range of $40 to $50 million after tax, and will be included within
other expense, net in the Company’s consolidated statements of earnings.
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